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DOJ antitrust challenge to airline alliance concludes in federal court

Date: November 18, 2022

By Doug Moser, Washington Post

A month-long antitrust case wrapped up in federal court Friday that could set limits on how and whether domestic airlines can form alliances.

Federal antitrust regulators last year sued to stop an alliance between American Airlines and JetBlue Airways in which the carriers share passengers, jets and revenue in certain routes between New York and Boston, calling it anticompetitive and harmful to consumers. Experts say the case is part of a larger Biden administration plan to tackle consolidation in key industries, coming after years of growing market dominance among a handful of domestic air carriers.

The airlines say their agreement allows the two relatively smaller carriers in the Northeast to compete more effectively against the two largest players there, United Airlines and Delta Air Lines.

During closing arguments Friday, Justice Department prosecutors pointed to an economic analysis that predicted between $500 million and nearly $700 million in higher fares for consumers on the routes encompassed in the Northeast Alliance. The analysis said the alliance also could limit competition among other routes across the country.

“The conclusion is very straightforward,” said William H. Jones II, the Justice Department’s lead attorney in the case. “This deal is poised to hit consumers with hundreds of millions of dollars per year in harm, in the form of higher fares and lower quality service.”

Attorneys for the airlines disputed any consumer harm, arguing that the government’s analysis didn’t make sense, that prosecutors couldn’t point to actual fare hikes and that it ignored an increase in airline seats already available.

Richard F. Schwed and Daniel M. Wall, attorneys for the airlines, said Justice Department attorneys didn’t prove that competition or consumers would be harmed, pointing to stable fares along the relevant routes and an increase in capacity since the alliance took effect.

“The NEA is a highly pro-competitive alliance that already has produced substantial benefits for consumers,” Schwed said. “I wasn’t talking about hypothetical benefits. I wasn’t talking about future benefits or some other transfers that haven’t happened yet. I was talking about actual, real benefits for consumers in terms of more flights, more choices and more capacity.”

Jones also argued that the alliance harms consumers by turning former competitors in the Northeast, a region that includes 70 percent of JetBlue’s business, into collaborators who coordinate on allocation of flights, scheduling and revenue-sharing.

Looking at individual routes out of New York or Boston, Jones said the American-JetBlue alliance claims more than half the market share. Given constraints on airport gates and slots — federal authorization to take off or land at an airport at a certain time — he said other airlines can’t easily enter the market.

“We’ve heard it’s creative and innovative, but it boils down to a classic antitrust case,” Jones said. “Competition between American and JetBlue is gone in those four NEA airports.”

The alliance covers Logan International Airport in Boston, and John F. Kennedy International Airport, LaGuardia Airport and Newark Liberty International Airport in the New York area.

Schwed and Wall argued that American and JetBlue joining in the Northeast has combined two “weaker competitors” into a single, stronger competitor to Delta and United, which have long dominated the route.

U.S. District Judge Leo T. Sorokin heard testimony for 17 days during the bench trial and plans to issue a written opinion. He said Friday he will finish reviewing evidence, then would schedule another hearing on any remaining questions. He gave no timeline for issuing an opinion.

The airline industry has consolidated considerably over the past two decades, through both mergers and bankruptcies after the Sept. 11, 2001, terrorist attacks and the 2008 financial crisis. According to the Justice Department, the top-four airlines had 55 percent of the domestic air travel market in 2000, with a dozen smaller carriers competing for the rest. By 2020, the top-four accounted for 81 percent of the market, alongside a dwindling number of smaller competitors.

The Biden administration has set that kind of market concentration in its crosshairs. The case involving the Northeast Alliance is among several that illustrate the administration’s more skeptical stance on partnerships and mergers.

Brian Quinn, a professor at Boston College Law School who specializes in mergers and corporate law, said more aggressive intervention in mergers and consolidation is becoming increasingly common.

“The people who made the argument to the Biden administration that bigness is bad have gotten the ear of policymakers,” Quinn said.

American and JetBlue finalized an agreement with the Transportation Department in January 2021 during the final days of the Donald Trump administration. The agreement established conditions for sharing information about seats, gate usage and other competitive details with the government. For example, the airlines can’t share information with each other about other routes where they compete.

Both airlines also agreed to give up coveted slots at JFK and Reagan National Airport outside Washington to foster more competition in those congested facilities.

The alliance began operating in February. About seven months later, the Justice Department under President Biden, along with attorneys general in Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia and D.C., sued to break it up.

Partnerships like the Northeast Alliance are rare among domestic carriers, but are common internationally. American is a founding partner of Oneworld, an alliance of international carriers that includes British Airways, Japan Airlines and others, sharing planes and airport space around the globe.

In the past year, the DOJ has challenged or obtained merger abandonments in six cases. In testimony before the Senate Judiciary Committee in September, Jonathan Kanter, head of the Justice Department’s antitrust division, said the department had seven pending antitrust lawsuits — the largest number of civil cases in litigation in decades.

Justice Department lawyers have argued cases against mergers in publishing and health care in recent months, with mixed results. Federal Judge Carl Nichols in September ruled against the government’s challenge to an $8 billion merger between health insurer UnitedHealth Group and technology firm Change Healthcare.

But on Nov. 1, another judge handed the DOJ a victory in blocking a merger between publishing giants Penguin-Random House and Simon & Schuster. Judge Florence Y. Pan agreed with the Justice Department, which argued that the proposed $2.175 billion merger would lessen competition in the publishing industry and exert “outsized influence over who and what is published, and how much authors are paid for their work.”

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